The Bank of England warned banks and borrowers on Wednesday about risks from a potential abrupt rise in global interest rates, and said banks might need to further bolster their capital cushions to protect against this.
The past week has seen a sharp rise in global bond yields since U.S. Federal Reserve Chairman Ben Bernanke said that the U.S. central bank may scale back bond purchases later this year.
BoE Governor Mervyn King said on Tuesday that markets had “jumped the gun” in their sharp reaction to Bernanke’s comments, but the BoE’s half-yearly Financial Stability Report said more bond yield rises could hurt UK banks, insurers and borrowers.
The BoE said that it had ordered an investigation into the vulnerability of Britain’s financial institutions and borrowers to higher interest rates, to report back by September to its new risk watchdog, the Financial Policy Committee.
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